Livestock: Nebraska May Remove Ban on Packers Owning Hogs – DTN

Nebraska is considered the nation’s top red-meat producing state, but it’s also one of the final bastions of major livestock production where meatpacking companies aren’t allowed to own livestock.

A bill in the state’s unicameral legislature would change that, at least for hogs.

The bill was introduced by state Sen. Ken Schilz, a former cattle feedyard operator from western Nebraska, who also sought a similar change last year in a bill that got bottled up in committee. Schilz reintroduced a bill this year that would specifically allow farmers to raise livestock owned by a meatpacking company.

At a hearing last week, Schilz told fellow state senators that Nebraska lags behind neighboring states in hog finishing units. Nebraska hog farmers are generally farrowing pigs then sending a large share of those feeders out of state for other farmers to grow to market weight. “We are hauling hogs out of the state at the expense of our producers,” Schilz said at a hearing last week.

The hogs then, in some instances, are shipped back to Nebraska for slaughter at one of the state’s three major pork-processing facilities.

The debate about a packer ban on ownership of livestock may be somewhat unique in 2015. Most major livestock states have gotten rid of such bans. Neighboring Iowa had a similar ban for nearly three decades until it was ruled unconstitutional by a federal judge 12 years ago, prompting Iowa officials to settle with packers a decade ago.

Nebraska law specifically outlaws packers directly or indirectly owning, keeping or feeding livestock. Larry Sitzman, executive director of the Nebraska Pork Producers Association, said he could not find another state that has a law banning packer ownership of livestock.

“I really don’t know the answer to that, but my sense is nobody does — an official legislative ban,” Sitzman said.

BILL LIMITED TO PORK PRODUCTION

In a state where there are three cattle for every person, Schilz’s legislation is limited to allow the corporate ownership of hogs. Schilz noted at the hearing that the bill is limited to pork production mainly because the hog industry is more vertically integrated than the cattle industry.

“Personally, it shouldn’t matter but understanding a compromise here, the cattle industry doesn’t want it and I respect that,” Schilz said.

The Nebraska Cattlemen did not testify on the bill and the group remains neutral on the bill. There apparently remain enough opponents to packer ownership in Nebraska’s cattle industry to cause cattle producers to stay out of the argument.

“There is a faction in the cattle industry that does not want that,” Sitzman said. “Our organization is more united and has come to facts that you heard in the hearing — we need it.”

The percentage of hogs fed under production contracts nationally rose from 5% in 1992 to 71% by 2009, according to a 2013 USDA Economic Research Service report. Pork production overall has grown nationally since then, but the number of actual hog farmers has fallen by 70%. The industry continues to become more vertically integrated.

Supporters of the bill told lawmakers it is much easier to finance confinement buildings if a producer has a long-term feeding contract. A 3,600-head unit can cost $725,000, while a 7,200-head facility can run $1.1 million or more. Steve Stanton, who works for Rabo AgriFinance in Iowa, told Nebraska lawmakers lenders support those contract agreements. Often the pork integrator will pay the lender directly for the farm operation.

“It’s a very competitive business in Iowa to find pig space,” Stanton said.

CONTRACT FEEDING IS ANOTHER TOOL

Scott Pilker, a vice president for the Nebraska Pork Producers Association, said contract feeding for packers would simply translate into “just another tool in the toolbox” for producers to use. “I’m all for expansion by any means,” Pilker said.

Two Iowa producers testified in Nebraska last week; they feed for Murphy-Brown, a subsidiary of Smithfield Foods. The producers said they provide the labor and the buildings, but Murphy-Brown provides the pigs, the feed and veterinary care for the hogs. Those producers also said they are satisfied with the arrangements and income for their work.

Nebraska hasn’t seen the same production gains in pork that other neighboring states have seen despite having three major pork-processing facilities in the state. Nebraska has 405,000 breeding sows, ranking it sixth in the nation in sow herds, according to the latest USDA quarterly hogs report. Nebraska also is sixth in market hogs at just under 2.7 million.

Nebraska’s sow herd has increased by about 45,000 head since 2000, but the state’s number of market hogs is nearly the same as 15 years ago at 3.1 million head.

Other states, notably Iowa and Minnesota, have seen their overall herds of market hogs steadily grow since 2000. Iowa saw its market hogs go from 14.2 million to nearly 19.9 million head at the end of 2014. Minnesota’s market-hog production has gone up 2.1 million head to 7.29 million. Kansas, another neighboring state with no ban on packer ownership, produces 1.4 million market hogs now, about 230,000 hogs more than it did in 2000.

Regardless of the ownership laws, other major pork-producing states saw the number of hog farmers decline from the 2007 to 2012 Ag Census. Iowa dropped from 8,330 to 6,266 hog farmers from 2007 to 2012 even though the state raises more than 1.1 million more hogs per year. Minnesota saw the number of hog farmers decline from 4,382 to 3,355 over that span.

Nebraska had 2,213 hog farmers in 2007, but that number declined by 33% to 1,476 by the 2012 Ag Census. Neighboring Kansas, which has no ban on packer ownership, also saw a decline of 30%, or a loss of 450 hog farms from 2007 to 2012.

Cattle production in Nebraska bucked the trend. From 2007 to 2012, the state actually added more than 1,850 cattle operations. The growth was mainly through farms that had 50 or fewer head. Kansas, which has a comparable number of cattle, saw the number of farms with cattle fall by about 2,400 operations over that time. Iowa also saw the number of cattle operations decline by about 2,800 producers.

SOME OPPOSITION TO THE BILL

The hearing last week in Lincoln had seven proponents testify to get rid of the packer ban while 15 opponents testified against it. Still, John Hansen, president of the Nebraska Farmers Union, said it will be tougher to bottle up the bill in committee this year because of changes on the Legislature’s Agriculture Committee.

“In our view it solves no known problem,” Hansen said of the legislation.

Hansen said the primary problem is a lack of a profitable market for independent producers. Hansen noted hog markets are already too heavily dominated with captive supplies of livestock. It’s not more helpful to raise more hogs in the state if that translates into fewer producers in the process, he said.

“The captive supply part of the deal will not make what’s left of the market any better,” he said. “You don’t do any damage to the one producer who gets a contract, but you can do pretty substantial damage to other producers who don’t want to be dependent on a packer contract. You make their situation worse. So how much at the end of the day do you help and how much do you make things worse?”

Hansen pointed to Nebraska’s rank overall as the top red-meat producing state in the nation. On a per-capita basis, Hansen said Nebraska has far more people involved in the livestock business than do other major red-meat producing states such as Texas or Kansas, Hansen said.

“It’s hard to look at that and say, ‘Gosh, things are really working badly in Nebraska.'”

The Nebraska Farm Bureau, Nebraska Corn Growers Association and Nebraska Soybean Association all back the bill. The pork association’s Sitzman believes the bill has enough support to lift the ban on packer ownership for hogs. “We’re fairly confident it will be successful this year,” Sitzman said.

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